Lending Worksmade a splash at the beginning of the year – launching with a “Shield” tool in place that offered a three-fold protection to its lenders. That Shield included a provision fund, insurance cover and protection against cyber crime. Now, almost a year later, Lending Works has made some tweaks to the Shield in an effort to further bolster investor security. We caught up with Nick Harding, Founder and CEO of the platform, for the inside scoop.
Could you give us a brief introduction to the Shield?
We believe that peer-to-peer lending should be as easy and safe as possible. With this in mind we created the Lending Works Shield which offers extra peace of mind for our lenders. The Shield itself consists of three parts: our unique insurance cover, our reserve fund and our meticulous underwriting processes. Firstly, our unique insurance covers about 90% of all borrower defaults by protecting our lenders against fraud and cybercrime as well as loss of employment, accident, sickness or death of the borrower. Our reserve fund then covers the remaining 10% of cases, which we call the "won't pay". All of this is underpinned by our highly experienced team of underwriters, who perform stringent ID, affordability, creditworthiness and fraud checks on every borrower.
How has the Shield changed of late?
Our original Shield insured an extra 10% of borrower defaults on top of those covered by the reserve fund. This already put us ahead of our competition in terms of lender safety. However, we felt that this was not enough. We wanted something even better for our customers. With the new Shield, we are able to say that our insurance covers 100% of borrower defaults due to fraud, cybercrime, accident, sickness, death or loss of employment, and we've got a reserve fund on top. We believe this is a much stronger message and really creates more piece of mind for our lenders.
How is insuring against lots of specific factors - as opposed to insuring the loanbook as a whole - a positive development for lenders?
The specific factors we have insured against cover around 90% of all borrower defaults. This covers far more than the original Shield could, providing more safety to our lenders. In the event of a recession leading to widespread unemployment, for example, our lenders would be far better protected than by other platforms in our space.
Does this mean that the Shield no longer covers lenders against borrowers that "won't pay"?
No - the Shield also includes a reserve fund which is used primarily to fund any borrowers that "won't pay". In addition, our highly skilled underwriters ensure that only the borrowers most likely to repay receive loans, based on a detailed analysis of their credit file, employment history, current account management etc.
Who is the insurer?
As I am sure you understand, we very much see this as a point of differentiation so we like to keep the names of the specific insurers to ourselves. What I can say though is that we are backed by three household name insurers with great insurance ratings: two with an A rating and one with a B rating, all of which with substantial market caps.
Was it difficult to persuade these A and B rated insurers to get involved in peer-to-peer lending?
We have been working on this for about a year, as we wanted to find the best solution for our customers in terms of protection and cost. As with anything new it took time to bring the big insurers on board. In the end they believed in us, our idea and the strength of our underwriting policies and procedures and were more than happy to partner with us.
What is the effect of the Shield's coverage on the interest rates on offer via Lending Works?
Even after the introduction of the new Shield, you will continue to see us often at the top of price comparison websites for both lenders and borrowers. We are eager to stay competitive on top of being the safest peer-to-peer lender, so our rates are not affected by the new Shield.